Economy

Inverted duty refund only for inputs, not input services: SC

·        The Supreme Court held that inverted duty refund is admissible only with respect to inputs and not for input services.

·        A fundamental feature of GST is the free flow of input credit from the manufacturer to the consumer.

·        Input Tax Credit is a mechanism to avoid cascading of tax (tax on tax).

·        For example, on the time of paying the tax on output, possible reduce the tax they have got already paid on the inputs.

·        Exceptions: A business under composition scheme cannot avail of input tax credit.

·        ITC cant be claimed for private use or for items that are exempt. Inverted duty structure approach higher taxes on input and decrease tax on output or final product. In easy terms, companies face higher GST rates on uncooked substances than on finished merchandise.

·        The GST Council has addressed the issue of inverted duty structure for many industries, however it still persists for footwear, textiles, pharmaceuticals and fertilizers.

·        Refund of the unutilized ITC below the inverted responsibility structure of GST has been an extended-pending problem for agencies because of higher levies on raw materials in comparison to the completed goods. Rule 89(5) of the CGST Rules affords for the computation of the refund of ITC due to an inverted responsibility shape.

·        Section 54(3) of CGST Act prescribes refund of unutilized enter tax credit based totally on a system supplied in rule 89(five) of CGST Rules.

·        The revised formulation has excluded input services from the scope of ‘internet enter tax credit score’ for computation of refund.

·        This rule become amended on April 18, 2018, with potential impact, to ensure that refund of unutilised ITC can best be availed on input goods and now not on enter service